How Bad Debt Can Affect Your Business

Bad debt can have a significant impact on a business, particularly when cash flow is already under pressure.

When a customer fails to pay an invoice, the business still has to cover its own costs- including wages, suppliers, rent and tax- despite not receiving the money it was expecting. If several customers pay late or fail to pay altogether, the impact on cash flow can quickly become serious.

The hidden cost of bad debt

Bad debt doesn't just mean losing the value of an unpaid invoice. It can also mean missed opportunities, reduced profitability and increased borrowing costs. A business may need to use an overdraft or additional finance simply to cover the shortfall created by unpaid invoices.

For example, if a business has £50,000 of outstanding invoices and £10,000 becomes unrecoverable, that £10,000 comes directly off the company's profit unless it can be recovered elsewhere.

How can businesses reduce the risk?

Strong credit control is essential. Businesses should carry out appropriate credit checks, agree clear payment terms and chase overdue invoices promptly.

For businesses that regularly offer credit to customers, credit insurance can also provide protection against certain customer insolvencies and non payments.

Invoice finance can also help businesses access cash tied up in unpaid invoices with the ability to add one bad debt protection which removes the underlying risk.

If you want to explore your options please contact Secure Business Finance and an expert will help you.